Russia-China Energy Deal Puts the US Dollar on Deathwatch

“The deal that wasn’t”… suddenly is.

That’s about all we know for certain in the aftermath of the first meeting between Russian president Vladimir Putin and Chinese president Xi Jinping on Chinese soil.

Vladimir Putin and Xi JinpingThe problem when Xi Jinping wears a suit coat is you can’t tell how high his pants are…

As we’ve mentioned for the past week, the two planned to sign a deal to export Russian natural gas to China. But yesterday, it appeared the final negotiations were falling apart.

“That was a shock,” said a post at Foreign Policy’s site last night, “a blow to Putin’s objectives and a reminder of how much China has the upper hand when it comes to gas deals with Europe’s biggest gas supplier.” You could practically hear the Beltway class, ever hostile to Putin, clinking their martini glasses in celebration.

Supposedly, the two sides couldn’t come together on a price. Russia wanted the price it charges European customers — about $12 per million BTUs. China wanted to pay what it pays to its Central Asian suppliers — roughly $10 per million BTUs. (The U.S. price is about $4.50, thanks to our shale bounty.)

But as dawn broke on the U.S. East Coast, word came from Shanghai the deal was done — price not disclosed, although the total value of the deal is $400 billion over 30 years.

Also not disclosed is whether the trade will be conducted in dollars — the world’s reserve currency — or in rubles and yuan.

U.S. [crude] production is now moving at its fastest clip since 1986.

But in the meantime, the negotiators in Shanghai also came to terms on boosting their nondollar trade in other goods.

Or as a joint statement said: “The sides intend to take new steps to increase the level and expansion of spheres of Russian-Chinese practical cooperation, in particular to establish close cooperation in the financial sphere, including an increase in direct payments in the Russian and Chinese national currencies in trade, investments and loan services.”

Russia’s “de-dollarization” plan we mentioned last week is proceeding apace.

Crude prices are pushing $104 this morning, the highest level in a month.

The Energy Department’s weekly crude inventory report showed a big drop in recent days. But U.S. production is now moving at its fastest clip since 1986.

For the record: Nearly 10 million homeowners remain underwater on their mortgages — owing more than the underlying property is worth.

That’s 18.8% of all U.S. homes carrying a mortgage during the first quarter, according to Zillow. The only saving grace is the figure a year ago was 25.4%.

Maybe the commodity boom really is over now.

The seven-year history of this daily e-letter is in part an ongoing chronicle of bizarre thefts of valuable commodities — fryer grease from restaurants, hay bales from parched Texas fields, lead from the roofs of Anglican churches, copper tubing from a TV transmitter (35,000 volts of electricity? No problem), etc.

But there’s been a drought of such stories for more than six months now. The best we’ve found of late is an item from Seattle, where the desired commodity was… porcelain.

Police say it goes like this: A couple walks into a Subway for sandwiches. They place their order, and the man heads to the restroom. He takes so long his wife knocks on the door and finally leaves without him.

“When the man eventually emerged from the bathroom,” according to a Reuters account, “he hurriedly exited the store in possession of a large plastic garbage bag, police said.”

Then an employee discovered the toilet tank was missing. Estimated value: $550.

The thief remains on the lam. But whenever he needs to be on the throne, he’s all set…


Dave Gonigam
for The Daily Reckoning

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